Ratings Recap: Balboa, MEMIC, ALAS, Modern Woodmen, Seven Seas

A.M. Best announced that it has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit ratings of “a” of Balboa Insurance Company, based in Irvine, Calif. and its wholly owned subsidiaries, Meritplan Insurance Company – also based in Irvine – and Newport Insurance Company, based in Phoenix, Ariz., which operate under an intercompany reinsurance pooling agreement, collectively referred to as Balboa Insurance Group. All of the companies are owned by the BA Insurance Group, Inc., which is ultimately owned by Bank of America Corporation. The rating affirmations reflect Balboa’s “continuing business activities, despite its waning status as an active insurer of lender-placed insurance products and its solid level of capital that has been maintained during the ongoing transfer of lender-placed and other business to QBE Insurance Group Limited (QBE) (Australia). The transfer began in 2011, and is expected to be substantially completed by the middle of 2014, which will result in Balboa being in a relatively dormant status, hence the revised outlook.” Best also noted that the ratings “reflect the substantial quota share reinsurance support in place with QBE during the transition period. Per the terms of the reinsurance contracts, QBE Insurance Corporation (QBEIC), a subsidiary of QBE, the non-operating parent holding company of the QBE group of companies, provides each company of Balboa with 100 percent quota share reinsurance. The reinsurance contracts, effective April 1, 2011, generally cover all liabilities arising from contracts of insurance or reinsurance issued by Balboa before June 1, 2011, or those issued by the insurers after June 1, 2011 at the direction of QBEIC.” The report also pointed out that “Balboa continues to benefit from contractual agreements with a BAC affiliate and QBE for the support they have been providing to Balboa’s policyholders to fully service the business that it writes and has written on a direct and gross basis during the period when its portfolio is being transferred.” As an offsetting factor Best cited “Balboa’s diminishing business profile as it moves closer to being inactive once the transfer of its lender-placed and other business to QBEIC is completed. It is expected that Balboa will be placed into run off once the transfer of its business is largely completed later this year—a key driver for the change in the outlook from stable to negative.”‘ In addition Best indicated that “Balboa is exposed to a significant amount of credit risk given its 100 percent reinsurance with QBEIC. However, this credit risk is tempered by the credit quality of QBE.” In conclusion Best said that at present there is “no potential for upward movement on the ratings of Balboa given its diminishing business profile and the expectation that any remaining business will soon be placed into run off. The majority of the remaining liabilities expected to be administered by Balboa are automobile GAP insurance policies averaging five years, the last of which is expected to expire sometime in 2016. Negative rating pressures could occur as the transfer of business nears completion and the companies move closer to inactive, run-off status. Other negative pressures could result from Balboa’s significant credit exposure to QBE and any unforeseen dividend demands from BAC that could materially affect the capitalization of these insurers.”

A.M. Best Co. has assigned a financial strength rating (FSR) of ‘A’ (Excellent) and an issuer credit rating (ICR) of “a” to MEMIC Casualty Company, based in Burlington, Vermont, and has assigned a stable outlook to both ratings. Best has also affirmed the FSR of ‘A’ (Excellent) and ICRs of “a” of MEMIC Casualty’s parent, Maine Employers’ Mutual Insurance Company (MEMIC), based in Portland, Maine, and MEMIC’s other wholly-owned subsidiary, MEMIC Indemnity Company (MEMIC Indemnity), based in Manchester New Hampshire. All three are collectively referred to as MEMIC Group. The outlook for all of the ratings is stable. The ratings assigned to MEMIC Casualty reflect its “strong capitalization, strategic importance to MEMIC Indemnity providing an alternative rating approach, as well as the explicit financial support of MEMIC,” Best explained. The rating affirmations for MEMIC and MEMIC Indemnity recognize the MEMIC Group’s “strong capitalization and historically favorable operating performance, which are based on the consolidated results of its members. The ratings further acknowledge the group’s experienced management team, conservative operating philosophy, and MEMIC’s solid market position and excellent reputation among Maine policyholders for its high level of service and profit sharing. The group’s positive attributes are derived from its demonstrated underwriting principles, conservative investment policy, aggressive claims management practices and firm commitment to loss control and in-depth safety education and training services.” However, Best also noted that “MEMIC, MEMIC Indemnity and MEMIC Casualty’s ratings and outlook could come under pressure should soft market conditions and a lack of underwriting discipline result in the group’s underwriting and overall profitability underperforming its peers for a sustained period or should there be a material decline in the group’s risk-adjusted capitalization.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Attorneys’ Liability Assurance Society, Inc., A Risk Retention Group (ALAS, Inc.) of Burlington, Vermont. The outlook for both of the ratings is stable. Best has also withdrawn the FSR of ‘A’ (Excellent) and the ICR of “a” of Attorneys’ Liability Assurance Society (Bermuda) Ltd. “as it no longer serves as a risk-bearing entity,” the report explained. “Effective January 1, 2014, ALAS, Inc. and ALAS, Ltd. completed a restructuring of their insurance operations. As of that date, ALAS, Ltd. transferred all of its insurance risks to ALAS, Inc., thereby completing its function as a reinsurer of lawyer professional liability risks. With this restructuring, ALAS, Ltd. carries no insurance-related liabilities on its books. Additionally, ALAS, Ltd. has re-domiciled to Vermont; and subsequently, eliminated Bermuda from its name.” Best said the “affirmation of ALAS, Inc.’s ratings reflects its supportive risk-adjusted capital, favorable operating performance and long-term dedication to the lawyer professional liability market.” In addition, Best said it “recognizes the extensive loss prevention resources provided to member insureds and the ALAS organization’s strong enterprise risk management program. As partial offsetting factors Best cited “the risks inherent within the lawyer professional liability sector including price competition, limited product line diversification and exposure to low frequency/high severity claims. The outlook for ALAS, Inc.’s ratings is based on its ability to maintain underwriting discipline and proactive management of its capital position, along with a smooth and successful transition of assets and liabilities formerly held at ALAS, Ltd.” Best added that while it “believes the ratings and outlook of ALAS, Inc. are well positioned at the current level, factors that may lead to positive rating actions include extended favorable operating results with supportive growth in policyholders’ surplus. Factors that may lead to negative rating actions include, but are not limited to, adverse changes in the lawyer professional liability market dynamics, protracted periods of unfavorable underwriting experience or shifting policyholders’ surplus position.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating of “aa-” of Illinois-based Modern Woodmen of America. Best explained that the “negative outlook reflects Modern Woodmen’s large proportion of interest sensitive reserves and the associated impact of spread compression on operating results in the current low interest rate environment. The rating affirmations reflect Modern Woodmen’s longstanding position as one of the largest fraternal benefit organizations in the United States, strong risk-adjusted capital position, consistently positive statutory operating earnings in recent periods and its improving balance of premiums between life and annuity products. As partial offsetting factors Best noted “Modern Woodmen’s unfavorable trends in operating results, high exposure to interest sensitive reserves and relatively high exposure to structured securities in the investment portfolio.” Best indicated that the “outlook for Modern Woodmen’s ratings could be revised to stable following improvements in operating performance through the widening of earning spreads and continued growth in ordinary life premiums. The company’s ratings could be downgraded if unfavorable trends in operating performance continue, leading to net losses, or there is a material decline in risk-adjusted capital due to increased risk in its investment portfolio or declines in unassigned capital.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Florida-based Seven Seas Insurance Company, Inc. The outlook for the FSR is stable, while the outlook for the ICR is positive. Best said the “ratings reflect Seven Seas’ consistent generation of exceptional underwriting and operating results, excellent capitalization and the synergies gained from its effective low-cost distribution platform and preferential access to those it insures via the customer network of its affiliate, Tropical Shipping and Construction Company Limited,” one of the largest transporters of containerized cargo from the United States and Canada to the Bahamas and the Caribbean. In addition the report said the ratings “acknowledge management’s specialty underwriting expertise within the ocean and inland marine cargo market, as well as its strong client relationships, effective loss control and risk management techniques. Seven Seas and Tropical Shipping are ultimately owned by AGL Resources Inc., an Atlanta-based energy services holding company, one of the nation’s largest natural gas distribution companies. In conclusion Best said: “Positive rating actions could occur if Seven Seas can sustain its outstanding underwriting and operating results and excellent risk-adjusted capitalization. Negative rating actions could occur if capitalization and/or operating performance fall markedly short of Best’s expectations, including a significant deterioration in loss trends and unforeseen changes in its existing operations and/or business strategy.”

Topics AM Best Maine Vermont